Senate Consumer Affairs & Technology Committee

Potential Revenue Source

Good afternoon Senators and thank you for the opportunity to discuss this issue with you. I am J. Ronald Eldridge. I have degrees in Accounting and Computer Science. For the past 30 years, I have been the Controller/Chief Financial Officer for several mid-size Louisiana Corporations. I have spent a good portion of this time studying Federal, State and Local Taxation for these companies.

As we all know, Louisiana is considered a very poor state. We generally rank near the bottom in every good statistic. Additionally, our population has been declining. This is to a point where we will probably lose a congressional seat after the 2010 census. We are losing our coast line, wetlands and our highway and bridge infrastructure. Additionally, our education system needs vast improvements.

How can we regain population, restore our coast line, improve our infrastructure, education and encourage economic growth? To do this we have to look at new and innovative revenue sources and methods.

Consequently, I looked at the major assets available as a revenue source and how it can generate the Billions of Dollars necessary to improve Louisiana’s economy and status. In looking at the Petroleum, Refining and Pipeline Industries, I find Louisiana is one of the Richest States in the nation.

As you can see on the Minerals Management Service Major Pipeline Map, over 80% of the offshore Oil and Gas Production is piped through Louisiana. According to the US Department of Energy over 1/3rd of all the energy consumed in the United States passes through Louisiana. This equates to more than 4.5 TRILLION Cubic Feet of Natural Gas, more than 38 BILLION Gallons of Crude Oil, 25 BILLION Gallons of Refined Oil and more than 1 TRILLON Cubic Feet of other gases. Yet Louisiana only consumes 2% of these totals. A tax of just $.01 per gallon or cubic foot would generate over $45 Billion per year to Louisiana.

For over 70 years, Louisiana has developed the massive infrastructure of pipelines to provide the rest of the nation with cheap Oil, Natural Gas, Sulfur, plastics, and other gases. This leads to the question of how to turn this major asset into an adequate revenue stream that encourages economic and population growth? The rules of Taxation is laid out in the US and Louisiana Constitutions and by Supreme Court Decisions. It is given that a state has a right to tax any property or entity inside its borders. Also, the rules for taxing items in interstate commerce are laid out in the US Supreme Court Decision of Complete Auto Transit v Brady. These are:

1) It has substantial connection (Nexus) to the state; 2) It is fairly apportioned; 3) It does not discriminate against interstate commerce; 4) It is fairly related to the services provided by the taxing state. It doesn’t give excessive benefits to the taxing state.

Governors Treen, Roemer and twice Governor Edwards tried to tax a portion of oil and gas, without following the rules of taxation. All these efforts were declared unconstitutional by the Supreme Court because the law discriminated against interstate commerce. This led me to the development of the Louisiana Self Help Plan. This plan is to have Louisiana pay for and determine its own fate, without the aid of the Federal Government.

The LA Self Help Plan

I propose putting an excise tax on all pipelines (the primary reason for our coastal erosion) greater than 20” in the state of Louisiana based upon the volume transported. An exclusion can be given to potable water, sewage and electricity in conduit. This would be a tax on the pipelines, not Oil, Gas, Hydrogen, Carbon Dioxide, Sulfur or any other product. Since the pipeline is in Louisiana and not in interstate commerce, Louisiana should have every right to tax the pipeline in any manor Louisiana deems necessary. But even if the US Supreme Court determines the pipeline is in interstate commerce, this meets the first 3 requirements of Complete Auto v Brady.

The next question is why an excise tax. In order to tax the volume in all pipelines, only a property tax or excise tax can be used. (Income Tax and Sales Taxes are Transactional). The Louisiana Constitution of 1973 eliminated the state property tax, so a Louisiana Constitutional Amendment would have to be enacted to make this a property tax. But the Excise Tax is the best method. An Excise Tax is used to generate revenues and/or change behavior. Much like the Excise Taxes on Alcohol or Tobacco are to change behavior, this plan is designed to change behavior, not to generate revenues. The massive amounts of revenue is only a side benefit.

We all know that Louisiana has a great need for funds to repair our coast, barrier islands, levees and hurricane protection. But much more is needed for Education, Medical Care, Transportation, Highway & Bridge Improvements, just to bring Louisiana in the top 25 states, not the bottom 5 states. Consequently a tax to change behavior (as this is designed) meets the 4th requirement of the Supreme Court and allows for almost unlimited taxation and revenues.

As you can see from the pipeline map, most pipelines go through Louisiana. This is because of all the cost of getting EPA approval, Corp of Engineer approval, state and local permits, and right a ways. This could take as much as 15 years to get done and constructed. While laying additional pipelines in Louisiana is easy. All the EPA and Corp permitting has already been done. Only state and local permitting to lay pipeline next to existing pipelines on existing right of ways is necessary. This means the project can be done in a year or less at greatly reduced cost. This behavior has to be changed if our coast and Louisiana can be saved.

The revenues by this plan can be almost any amount that Louisiana wants to collect. A guide to this was the US Supreme Court Decision in Commonwealth Edison v Montana. Montana passed a tax on Coal. The coal was being strip mined and damaging the Montana landscape and environment. The law dedicated 50% of the revenues to restoring the landscape and environment. Additional revenues were set aside for alternative energy with the remaining going to the general fund. Even though all the coal was being exported outside the state, the Supreme Court Ruled the tax was not excessive. It didn’t matter the state law was contrary to US Energy Policy.

Now we know how to indirectly tax the oil and gas passing through Louisiana. We can now generate as little or as much revenue as Louisiana desires.

This leads me to my overall tax proposal. This is only one of hundreds of variations. I myself have generated several options, which would generate anywhere from $60 Billion to $500 Billion per year in revenues, with vastly different cost impacts on Gas or Oil. I believe Louisiana should follow some of the Alaska response to oil and gas revenues. Once Alaska began receiving oil and gas revenues, Alaska eliminated their Sales Tax, State Property Tax and Income Tax. Once the budget is balanced annually, Alaska sends every resident of the state a check for $3,000 to $6,000 per year. Louisiana should tax pipelines to generate enough revenues to do something similar. Since there are many variations of this plan, I will give you a brief overview of my ideas. I do have several detailed bills which I can give you which would generate up to $500 billion per year in revenues.

Overview of LA Self Help Plan

The Tax

First, as I stated previously, an excise tax on all pipelines in Louisiana, over 3,000 feet in length and over 20” in diameter, at a rate of $.03 per cubic foot of gases and $.50 per gallon on liquids. I would exempt pipelines carrying potable water, Sewage or electricity or data. I estimate this tax generating in excess of $198 Billion per year. This tax would be mainly paid for by increases in oil and gas pipeline companies, but other industries would pay a portion. Of this $198 Billion approximately $4 Billion would be paid for by Louisiana Business or Residents.

Dedicated Revenues

Next to comply with Commonwealth Edison v Montana & #4 of Complete Auto Transit v Brady, I would dedicate 50% of the revenues to a fund for Barrier Island and Coastal Restoration, Hurricane Protection and Levee Construction and Maintenance. This would put approximately $99 BILLION per year in this fund. I believe this would be more than enough money over 5 years to restore the barrier islands and coast line to where it was in 1900. Next I would dedicate 10% of revenues to a fund to produce alternative energy sources, devices and products to replace oil and gas. Approximately $9 Billion per year, will go to a fund which would go to Louisiana Universities for Research and Louisiana Business’ for research and development.

Tax Changes

First, as Alaska did, Louisiana should eliminate state and local Sales Taxes. To accomplish this Louisiana should change the State Sales Tax Rate to Zero. (not repeal it). Next, we should require all local sales taxes be filed with no payments with the Department of Revenue. The Department of Revenue would then pay each Tax Collector’s office 125% of the reported taxes. This would cost Louisiana about $12 Billion of the Pipeline Excise Tax Revenue.

Next, the law should direct all property tax assessors of Louisiana to send all property tax bills to the Department of Revenue. The Department of Revenue would then be directed to pay 125% of all Local Business and Individual property taxes to the local taxing authority. This would cost approximately $6 Billion of the Pipeline Excise Tax Revenues.

Next the State Income Tax could be changed to Zero at a cost of approximately $12 Billion in lost revenues. (But this would not reduce the Pipeline Excise Tax Revenues). But I suggest again following Alaska’s general lead. I recommend creating a reverse Income Tax. I would change the current income tax rates:

Individual

Now

Recommended

First Bracket

2%

-10%

Second Bracket

4%

-8%

Third Bracket

6%

-6%

Corporations

First $25,000

4%

-12%

Next $25,000

5%

-11%

Next $50,000

6%

-10%

Next $100,000

7%

-9%

Next $200,000

8%

-8%

This would reduce the Pipeline Excise Tax Revenues by approximately $15 Billion, leaving approximately $57 Billion to go to the General Fund. (Almost twice our current budget.)

This reverse income tax and elimination of Sales and Property Taxes would be the largest boast to Louisiana Economic Development. This plan would bring thousands of business’ to Louisiana and millions of people. Louisiana would become growing instead of declining.

Miscellaneous Items

Additionally, I would suggest the following miscellaneous provisions:

1) Increase State Supplemental Pay to Teachers by $3,000 per month 2) Increase State Supplemental Pay to Police by $3,000 per month 3) Increase State Supplemental Pay to Firemen by $3,000 per month 4) Increase in pay of all state employees by 15%

These miscellaneous provisions would allow Louisiana would allow us to have the highest paid Teachers, Police and Firemen in the South and in the top 15 states in the nation.

Recap

This plan would make the cost of Natural Gas increase by at least 400%. While the cost of Gasoline and Diesel would increase 50% to 100% across the nation. But the elimination of Sales Taxes, Property Taxes and a Reverse income tax would put more than 5 times the cost increases into the pockets of all Louisiana Residents and Business’. Consequently, the benefits to Louisiana would greatly exceed the cost. For over 70 years Louisiana has provided very cheap energy for the rest of the nation, at the detriment to Louisiana’s Coast Line, barrier islands, population and economy.

Now that this committee and the legislature knows how to improve the state’s residences, business’ and economy, the senate should study why this proposal cannot work, or present a bill implementing this plan.

I will be happy to answer any questions you have on this plan. Additionally, I will gladly meet with additional committee’s, departments, boards or agencies to answer their questions or comments.